We study the behavior of employers and employees in a gift exchange game and find that employers offer lower wages when there is the risk of losing money. This, however, does not lead to lower effort level choices. In fact, effort per wage unit is significantly higher in the treatment with...

We study a gift exchange game with 12 employees and one employer. When the employer can offer individually differentiated wages in a setting without collective action, we observe high levels of wages, effort choices, and total earnings. When the employer is restricted to offering a uniform wage,...